81 Percent of Refinancing Homeowners Maintain or Reduce Mortgage Debt in Second Quarter

In the second quarter of 2012, 81 percent of homeowners who refinanced their first-lien home mortgage either maintained about the same loan amount or lowered their principal balance by paying-in additional money at the closing table. Of these borrowers, 59 percent maintained about the same loan amount, and 23 percent of refinancing homeowners reduced their principal balance; the share of borrowers that kept about the same loan amount was the highest in the 27-year history of the analysis.

The net dollars of home equity converted to cash as part of a refinance, adjusted for consumer-price inflation, was at the lowest level in 17 years (since the second quarter of 1995). In the second quarter, an estimated $5 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages, substantially less than during the peak cash-out refinance volume of $84 billion during the second quarter of 2006.

The median interest rate reduction for a 30-year fixed-rate mortgage was about 1.5 percentage points, or a savings of about 28 percent in interest rate, the largest percent reduction recorded in the 27 years of analysis.

Among the refinanced loans in Freddie Mac's analysis, the median depreciation of the collateral property was 16 percent over the median prior-loan life of 5.1 years. The prior-loan age was the oldest in 13 years, surpassed only by the prior-loan age recorded in the third quarter of 1999.

Property-value change and loan age varied between Home Affordable Refinance Program (HARP) and other refinance loans. For loans refinanced during the second quarter through HARP, the median depreciation in property value was 34 percent and the prior loan had a median age of about 5.5 years (to be eligible for HARP, the prior loan had to be originated before June 1, 2009). Excluding HARP loans, other loans refinanced during the second quarter had a median property-value decline of 2 percent over a median prior-loan age of about 4 years.

"The typical borrower who refinanced reduced their interest rate by about 1.5 percentage points. On a $200,000 loan, that translates into saving about $2,900 in interest during the next 12 months. Fixed-rate mortgage rates hit new lows during June, with 30-year product averaging 3.68 percent and 15-year averaging 2.95 percent that month, according to our Primary Mortgage Market Survey®.

"The enhancements to HARP announced in October, such as removing the maximum loan-to-value limit, resulted in additional refinance volume during the second quarter. HARP loans were about one-third of Freddie Mac's refinance fundings during the second quarter, the highest share since HARP's inception."

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Cash-out Refinance Analyses Information

These estimates come from a sample of properties on which Freddie Mac has funded two successive conventional, first-mortgage loans, and the latest loan is for refinance rather than for purchase. The analysis does not track the use of funds made available from these refinances. The analysis also does not track loans paid off in entirety, with no new loan placed.

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four homebuyers and is one of the largest sources of financing for multifamily housing. www.FreddieMac.com.

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